Tencent is making a strong push into artificial intelligence, and investors are closely watching its next earnings report.
The company’s AI expansion comes as Alibaba sees significant gains from its DeepSeek model, fueling competition between China’s tech giants. However, Bank of America (BofA) has warned that the recent surge in Chinese stocks might not be sustainable.
Tencent expands AI investments amid tech sector growth
China’s latest policies to boost consumption are driving gains in the tech sector. Investors are eager to see if Tencent will commit to AI investments on the same scale as Alibaba. Alibaba has pledged over 380 billion yuan ($53 billion) toward AI in the next three years, raising expectations for Tencent’s next move.
Tencent has already begun integrating AI into its platforms. On Tuesday, it introduced an AI tool powered by Hunyuan3D-2.0, which converts text and images into 3D visuals. The company also leverages DeepSeek’s AI model across its WeChat and search functions. Analysts suggest that this strategy could increase Tencent’s monetization potential. Charlene Liu, an analyst at HSBC Holdings, believes that AI integration within the Weixin ecosystem could drive higher ad revenue.
Tencent’s gaming and earnings outlook under scrutiny
Tencent’s gaming division is another area of focus for investors. The company’s overseas expansion and the success of its new game, Delta Force, will play a key role in its financial performance. Analysts project an 8.7% revenue increase for the December quarter, marking Tencent’s most substantial growth over a year. Gross margins are expected to reach 53.3%, approaching an eight-year high.
While Tencent’s stock remains about 30% below its all-time high, it has outperformed many other Chinese tech firms suffering regulatory crackdowns. The company’s stock has gained 30% this year, compared to Alibaba’s 60% surge. Despite this growth, concerns remain about whether Tencent can maintain its momentum.
BoFA warns of market risks and potential correction
BoFA strategists caution that China’s stock rally could mirror the 2015 boom-and-bust cycle. The Hang Seng China Enterprises Index and MSCI China Index have surged more than 30% since mid-January, a pattern similar to the rally that ended in a 50% crash a decade ago.
Tencent’s valuation is now 20 times forward earnings, surpassing Alibaba’s 15 times and nearing Meta’s 22 times. Some investors believe the stock needs to deliver strong financial results to justify its current valuation. Options traders are already preparing for volatility, anticipating a 4.4% price swing after Tencent’s earnings report.
During Shanghai investor meetings BofA discovered increasing reserve from its long-term investor base. The increasing worry among stakeholders involves employment trouble alongside price deflation and weak credit request trends. Geopolitical concerns along with other hazards form substantial threats to market stability.